The Internet as Channel

1
The Internet as Channel

• Role of channel as a resource
• The Internet and channel types
• Mix implications
• Channel issues for perspectives

2
The Internet as Channel
Content
Website
Receiver
Channel
Source
3
Channel as a Resource Overview

• What is a channel?
• Purpose to move stuff from supplier to buyer
• Nature interdependent firms as intermediaries
• How is the Internet a channel?
• Enables distribution
• Acts as intermediary (Remember CME)
• What are the effects of the Internet
• On channel characteristics?
• As channel component, on mix elements?
• Forms, flows, and functions

4
The Internet and Distribution The Future
Through the Past

• Traditional forms of channel structure
• Manufacturer--Consumer
• Ex. Lands End

Manufacturer
Consumer
5
The Internet and Distribution The Future
Through the Past

• Traditional forms of channel structure
• Manufacturer--Retailer--Consumer
• Ex. anything you buy at WalMart

Manufacturer
Retailer
Consumer
6
The Internet and Distribution The Future
Through the Past

• Traditional forms of channel structure
• Manufacturer--Wholesaler--Consumer
• Ex. Sams Club

Manufacturer
wholesaler
Consumer
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The Internet and Distribution The Future
Through the Past

• Traditional forms of channel structure
• Man.--Whole.--Ret.--Con.
• Ex. Grocery stores

Manufacturer
Wholesaler
Retailer
Consumer
8
The Internet and Distribution The Future
Through the Past

• Traditional forms of channel structure
• Man.--Whole.--Ret.--Con.
• Ex. Grocery stores
• ancillary members

Manufacturer
Wholesaler
Retailer
Consumer
Transportation Warehouse Ad Agency
9
Facilitating Agencies in Internet Channels

• Transportation agencies
• Storage agencies
• Order processing agencies
• Advertising agencies
• Financial agencies
• Insurance companies
• Marketing research firms

10
The Internet and Distribution The Future
Through the Past

• What a channel member can do
• In order to distribute, companies carry out three
  functions.
• To carry out functions, companies carry out
  several flows.
• To carry out flows, companies develop structures
  or forms.

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What a channel member can do

• Functions
• Exchange buying, selling, pricing
• Logistic products available a specified times
• Logistics Management moving products through
  channels
• Flows
• Information Need for good information from
  members
• Negotiations Mutual exchange that is agreed upon
• Money How much will be paid, and when
• Promotion Creates awareness of the product on
  members
• Product What is being moved through channel
• Forms
• Direct, Indirect, Hybrid, Multi-channel

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The Internet and Distribution The Future
Through the Past

• Before Form can be altered, Flows are satisfied.
• This is done through relationships with members!

Manufacturer
wholesaler
Consumer
Dyad
13
Social System

• Channel Relationships must deal with some of the
  following issues
• Conflict
• Power
• Role expectations / Relational Norms
• Communication Processes

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Conflict Example

• Auto Manufacturers record sales when their
  Dealers take delivery of the cars
• So Auto Manufacturers want their dealers to take
  as much inventory as possible
• Auto Dealers dont want to tie up their money in
  excess inventory

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Some Causes of Channel Conflict

• Goal Incompatibilities
• Communication Differences
• Manufacturer utilizes new type of channel (i.e.,
  the Internet)
• Power Asymmetry

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Relationships with Channel Members

• Flows
• Information
• Negotiations
• Money
• Promotion
• Product

• Power
• Legitimated
• Expert
• Reward
• Referent
• Coercive

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Summary

• Sometimes you have conflict. Conflict is higher
  when there is symmetric power, incompatible
  goals, and poor communication.
• So how do these things change how you set up
  channels?
• You have to decide how this can work for you.
• Who has the power in the relationship?
• Who has the best relationship with your target
  that is who should be retained and used as a
  channel member!!!
• So how do you use the internet to implement or
  change channel structure? (i.e., what Form of
  channel structure should you use?

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Impact of the Internet The Past, Present

• Forms Direct, Indirect, Hybrid
• As the only channel member (Direct)
• Which companies can do this?
• Depends on product type (i.e., easy to
  distribute?)
• Depends on channel relationships
• Strong manufacturer and weak retailers
• Weak retailers are often cut out to reduce costs

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Impact of the Internet The Past, Present

• Forms Direct, Indirect, Hybrid
• As a channel component (Indirect)
• Disintermediation (most hyped possibility)
• Reintermediation (most likely possibility)

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Characteristics of Disintermediation

• Elimination of one or more middlemen
• e.g., Direct sales by producer to buyer
• Channel Relationships
• More effective when manufacturer has power
• More effective when retailer-consumer
  relationships are less important
• For example Some electronics, computers, shoes,
  music, books.
• More for B2C than B2B?
• Likely victims of disintermediation
• Inefficient and weak channel members
• Lack of compliance to coercive tactics
• Example WalMart

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Another Option Reintermediation

• Introduction of new middlemen
• Infomediaries, aka, cybermediaries
• Characteristics of infomediaries
• Constitute online brands (e.g., Travelocity)
• Reflect new way to create relationships, matching
  products to buyers needs (e.g., CarPoint)
• Occupy a different niche in channel structures
• From transferring products (Amazon.com for
  Toys-R-Us)
• To creating buyer/seller links
• Information brokers Provide price and
  availability information (CNET)
• Transaction brokers Facilitate buying and
  selling (eBay.com)
• Marketplace concentrators Aggregate information
  from diff. vendors (Pricegrabber.com)
• Function as service, not as product
• For buyers and for sellers

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Another Option Reintermediation
Infomediaries (i.e., Agents)
Buyer (Consumer)
Seller (Marketer)
Shopping Agents (Info brokers)
Purchasing Agents (Trans. broker)
Affiliate Programs (Linking firms)
Virtual Stores/Malls (Retailers)
Aggregation Agents (Marketplace concentrators)
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Affiliate Programs
Affiliate programs, also called associate
programs, are arrangements in which an online
merchant Web site pays affiliate Web sites a
commission to send them traffic

• There are at least three parties in an affiliate
  program transaction
• The customer
• The affiliate site
• The merchant site

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Another Option Reintermediation(Disintermediate
d Retailing Contacts)
Marketer
Marketer
C
C
C
C
C
C
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Another Option Reintermediation(Reintermediated
Retailing Contacts)
Marketer
Marketer
Intermediary
C
C
C
C
C
C
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Impact of the Internet The Past, Present

• Direct, Indirect, Hybrid
• Alliance between channel members (Hybrid)
• Competition interaction resource allocation
  interbreeding genetic variation
• Mingled capabilities confer competitive advantage
• Mingled capabilities blur industry boundaries
• Create strategic networks or business ecosystems

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Impact of the Internet The Past, Present

• Direct, Indirect, Hybrid
• Strategic Alliances or Strategic Networks
• Example Intel, Microsoft and Dell

Hardware
Software
Computer
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Strategic Networks / Ecosystem
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Impact of the Internet The Past, Present

• Direct, Indirect, Hybrid, Multi-Channel
• Fourth possible internet channel strategy
• Multi-channel Strategy
• More than one channel used
• 1) Offline direct to consumers (Catalog)
• 2) Online direct through website
• 3) Through online retailers (Amazon.com)
• 4) Form Strategic Alliances and Networks
• Advantages and Disadvantages (Channels class)
• Advantages?
• Disadvantages?

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Impact of the Internet The Past, Present
No Internet Involvement
High Internet Involvement
Moderate Internet Involvement
Levels of Investment
Rely on traditional channels
Manage channel activity with internet capabilities
Use internet as additional distribution channel
Include internet as one component of channel
structure
Use internet as sole distribution channel
Activities
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Mix Implications of the Internet as a Channel
Resource

• Channel and Product
• Issues for determining product strategy
• Effects on product assortment (can change
  products themselves)
• Coordination benefits for inventory and warehouse
  costs
• Effects on product development
• Supply chain coordination
• Channel and Price
• Channel efficiency savings low cost
• Disintermediation effects
• Reintermediation effects
• Shifts power structure
• To buyer, given transparency
• To seller, given demand

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More Mix Implications

• Channel and Place
• Effects of the channel on the end of the channel
• Online stores
• Lower physical costs
• Tax advantages
• Virtual inventory advantages
• Global distribution
• Channel and Promotion
• Information as a resource what gets transferred
• Global reach
• Target appropriateness issues (channel affects
  content)
• Channel as means for contact (personalization,
  customization)

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Do You Have a Problem?

• Issues for marketers feasibility
• Channel relationships
• Power and conflict
• Leveraged cooperation
• Issues for consumers trust
• Real v. false benefits (Do you know what youre
  getting?)
• Product availability (eToys at Xmas)
• Issues for policymakers liability
• Illegal consumption (e.g., drugs and alcohol)
• Issues for technology stability
• Reliability of channel delivery (e.g., hackers)
• System/process development (e.g., extranets as
  Internet EDI)